Greece, Puerto Rico and Illinois Linked by Similarities
Before this year, nobody would have mentioned Greece, Puerto Rico and Illinois in the same breath. At one time they had little in common. Now they are linked by failed economies. The modern Greek state, which was established in 1830 following the war of independence from the Ottoman Empire, traces its roots to the civilization of Ancient Greece some 4,000 years ago.
Illinois became the 21st State on Dec 03, 1818. As a result of the Spanish-American War, Puerto Rico was ceded to the United States on December 10, 1898 along with Guam and the Philippines.
Each has failed to sustain an economy that could protect its citizens. They are unable to create enough good paying jobs while letting pensions and entitlements spiral out of control. Debt has piled up to unimaginable levels.
The “official” unemployment rate in Greece stands at more than 25 percent. Unemployment has the highest impact on young people aged 15 to 24 years — more than half of the young active population is unemployed (53.2 percent).
We are at a crisis level, and Illinois, Michigan and California are close to the edge of the economic cliff.
As it stands currently, Greece spends more than any other country in the European Union on pensions as a proportion to GDP — an astounding 17.5 percent. But this doesn’t take into account Greece’s aging population, with one of the highest “age dependency ratios” or the level of support given to younger and older citizens by the working age population.
Following in its footsteps, Puerto Rico, has an unemployment rate of 12.5 percent. And like Greece and Illinois, pension costs in Puerto Rico have skyrocketed.
Puerto Rico’s pension system is only 7 percent funded and could run out of money by 2018. And the commonwealth’s near junk-status credit rating reflects its unsustainable pension costs, as does the massive penalty rate it pays to borrow money.
This brings us to Illinois where Ted Dabrowski, writing for Illinois Policy, noted: “Too bad Puerto Rico isn’t a state. If it were, Puerto Rico, and not Illinois, would have the nation’s worst-funded pension system and the country’s worst credit rating.” Dabrowski suggests that Puerto Rico offers Illinois a preview of things to come if the state doesn’t pass real and sustainable pension reforms.
Take a look at a country that appears to be doing everything right: Germany. Ironically, its move to the euro has helped its economy soar, while it has sunk Greece.
Germany is one of the very few countries in the world running a balance of payments surplus. But Germany had the discipline not to take on expensive debt because most German companies and individuals refused to spend beyond their means. How refreshing is that?
Germany also embarked upon a program of fundamental labor market reform in 2003 by forcing labor unions to push for moderation in wage inflation. Wages stayed firm, working hours actually decreased, and workers stayed loyal to their employers.
The real secret in Germany is this: school age kids aged 7-14 spend more time in school, with half of all youngsters in upper secondary school in vocational training, and half of these in apprenticeships.
Apprentices aged 15 to 16 spend more time in the workplace receiving on-the-job training than they do in school. After three to four years, these young people are almost guaranteed a full-time job with good pay and good benefits.
Are the Germans geniuses? Not really. They just understand that a society that does not create jobs, train its workers, and reduces its reliance on entitlements, a nation, state, or commonwealth cannot succeed.
We are at a crisis level in this country, and Illinois, Michigan and California are close to the edge of the economic cliff. Greece created the first democracy and America perfected it. How ironic that both of these democracies have ignored their own histories.